Intangible Assets Valuation in the Malaysian Capital Market

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Intangible Assets Valuation In

the Malaysian Capital Market

TEORI AKUNTANSI

KELOMPOK III

Afip Agrianto 123121003Audit W PradanaAris Aviantara 123121013Cittanindya Andreyanto 123121019Ganesa Kusbandana 123120045Mas Nur MukminSamuel Marpaung 123121062Sukma Bayu Setiawan 123121070Widya Febriyari Anita 123121084


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Intangible Assets Valuation In

the Malaysian Capital Market

Norhana Salamudin

Institute of Business Excellence, Faculty of BusinessManagement, Universiti Teknologi MARA, Shah Alam,

Malaysia

Ridzwan Bakar

Telekom Malaysia, Kuala Lumpur, Malaysia

Muhd Kamil Ibrahim

Universiti Teknologi MARA, Segamat, Malaysia, andFaridah Haji Hassan

Institute of Business Excellence, Faculty of BusinessManagement, Universiti Teknologi MARA, Shah Alam,

Malaysia


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Purpose

This study examines the intangible assets value of

the Malaysian market.

It measures the relationship between intangible

assets and corporate market value of Malaysianfirms and whether they are consistent with findings

in other advanced markets.


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Design/Methodology/Approach

The development of intangible assets of

Malaysian companies over 2000 to 2006

were measured statistically using

Landsmans balance sheet identity model.

Cross-sectional multi-regression

procedure was used to ascertain the

relationship between intangible assets andfinancial performance.


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Findings

The findings reveal that the Malaysian marketdeveloped intangible assets at a rather slow pace, with

significant development from year 2004 onwards.

There is a positive trend in intangible assetsdevelopment in Malaysia, consistent with those ofadvanced markets such as the US, Europe and

Australia.


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Originality/Value

The main contribution of this study is

that it provides empirical evidence that

intangible assets or intellectual assetsare strategic assets that require close

attention in line with development of the

knowledge-based economy.


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Introduction

Empirical studies on intangible assets (IA) in theadvanced markets have indicated that they areimportant strategic assets (Hall, 1992;Nakamura, 2003).

The significant gap between corporate marketvalue and accounting book value has invitedwide research on the unexplained value orhidden reserve ignored by current financialreporting standards (FRS) and accountingprofessionals (Amir et al., 2003; Ballow etal.,2004; Daum, 2003; Edvinson and Malone,1997; Kane and Unal, 1990; Leadbetter, 1999;Lev, 2001; Nakamura, 2003; Sullivan and

Sullivan, 2000).


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Literature Review

FRS 138 (MASB, 2005) defines intangible assetas an identifiable non-monetary asset withoutphysical substance

The term intangible assets in this study refersto intangible assets as the difference beetweenCorporate Market Value (CMV) and AccountingBook Value (ABV)


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Objectives of the Study

Three Key Objectives of This Study are:

to investigate whether Malaysian

companies develop intangible assets;

to ascertain the pattern of intangibleassets in Malaysian capital market; and

to study the relationship betweenintangible assets and financialperformance.


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Methodology (1)This study examines corporate market value (CMV) of

Malaysian companies for the period 2000-2006.The list of companies was obtained from the BursaMalaysia website (www.bursamalaysia.com.my)and the Annual Companies Handbook Database

(Kuala Lumpur Stock Exchange, 2006).

Sampling was done via a three-step process:

Identified companies that fit the intention of thisresearch.

All industrial sectors were included except for Mining,Real Estate Investment Trust (REIT) and Warrantsectors. The final sample represented

approximately 80 per cent of total companiesregistered in the Bursa Malaysia. We named this

sample as the Market Intangibles Portfolio (MIP).


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Methodology (2)

Relevant balance sheet variables were collectedusing Datastream. These included end-of-year

share prices, number of shares outstanding, bookvalue of assets and liabilities, shareholders equity

and profit after tax.

The usable sample comprised 2,121 firm-yearobservations. We finally ran the MIP sample using

Microfit ver 4.1


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Descriptive Statistics


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Table II.

Variables for Regression


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Empirical Results And Analysis

Since the main objective is to observe whether the Malaysian

market develops intangible assets, the key consideration of thispaper is the intercept a0.

Results of the intercept coefficient are shown in Figure 2.

If the market considers unreported intangible as valuable, then0 should be positively related to a firms corporate marketvalue

Figure 2

Market Intangible Assets Intercept Coefficient Trend Year 2000-2006


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Table III.

Model 1 Net Assets Market Value Predictions

(Regression Summary Statistics)

The results indicate that intangible assets are negative and

not significant in the years 2000-2001. They are present inyears 2002-2006. The p-value is positive and marginally

significant at 10 per cent level in year 2004 only, while therest are positive but not significant.


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Table IV.

Model 2 NAnED. Market Value Predictions

(Regression Summary Statistics)

The findings reveal that intangible assets developed in years 2004 to2006, results being positive and significant at 1 per cent in 2004 and2005 and at 5 per cent in 2006.

The study also provides further evidence that the net assets (BVNA)predicted sign are consistently positive and significant throughout theduration from 2000 to 2006.


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Figure 3 that shows the declining value of tangibleassets and the emerging importance of intangible

assets in Malaysia. Values of intangible assetsincreased tremendously from 10 per cent in 2002 to43 per cent in 2006.


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Figure 4 shows a declining trend of net assets and anincreasing trend of intangible assets over the period from2000 to 2006.

The trend shows the gap between net tangible assets andintangible assets getting smaller, particularly in years 2004-2006.


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The Result

Intangible assets have been acknowledged to bepresent and developed in the Malaysian CapitalMarket. Intangible Assets present in year 2000 to2006, and being significant in year 2004.

There is an upward trend of intangible assetsdevelopment in the Malaysian Capital Market.

The companies that develop higher intangible

assets tend to show better financial performance.


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The Strategic Implications Of This Study

Reveal Three Key Opinions

this study has shifted traditional paradigm whereinvestors and analysts depend on a firms financialstatements for stock valuation purpose.

intangible assets are important strategic corporateassets, which are either ignored or not managed.

the paper also suggests that companies thatdevelop higher intangible assets tend to showbetter financial performance. For policy makers andstandard setters, the findings of this study suggesta need to review and propose new accountingstandards and regulations for corporate reportingand disclosure to develop policies that enforcedisclosure of both intangible resources and tangibleassets


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Conclusion and Direction for Future

Research

The results indicate that the market has begundeveloping intangible assets, providing a clue thatthe trend is slowly moving towards recognising theimportance of intangible assets in the comingyears.

Recognising the limitation of this study, futureresearch on this subject should be able to expandthis study horizontally in terms of greater samplesize.

It is worth expanding studies on individualcomponents of intangible assets such as brandvalue, research and development (R&D),intellectual capital and human capital


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Documents

Intangible Assets Valuation in the Malaysian Capital Market